Nigeria’s external debt projected to hit $72.6bn by 2027

The International Monetary Fund (IMF) has projected that Nigeria’s external debt could rise significantly over the next two years, reaching about $72.6 billion by 2027, with concerns that election-related spending pressures and persistent social challenges may further strain public finances.

The forecast was contained in the Fund’s latest Article IV Consultation report on Nigeria, which assessed recent economic developments and medium-term outlooks for the country.

According to the report, Nigeria’s public external debt is expected to climb from about $51.9 billion in 2025 to $66.5 billion in 2026 before peaking at $72.6 billion in 2027. The increase represents a roughly 40 per cent rise within two years.

The IMF noted that while Nigeria has made progress in stabilising key macroeconomic indicators in recent years, fiscal pressures remain elevated. It warned that rising poverty levels, food insecurity, and spending demands associated with the political cycle ahead of the 2027 elections could widen the fiscal deficit and increase borrowing needs.

The Fund stated that: “Spending pressures from elevated poverty and food insecurity, including in the run-up to the elections, could widen fiscal deficit and increase financing needs.”

Beyond public debt, the report also projected an increase in Nigeria’s total external debt—covering both government and private sector obligations—from $109.3 billion in 2025 to $132.0 billion in 2027.

This implies an overall increase of about $22.7 billion within the three-year period, driven largely by higher borrowing and financing requirements across sectors.

Data referenced in the report, aligned with figures from Nigeria’s Debt Management Office, showed that public external debt stood at approximately $51.86 billion as of the end of 2025.

The IMF further expressed concern about debt sustainability indicators, noting that Nigeria’s external debt burden would remain high relative to economic output and export earnings. It projected that public external debt as a share of GDP would rise from 17.9 per cent in 2025 to 18.7 per cent in 2027.

More significantly, debt exposure relative to exports is expected to exceed 100 per cent by 2027, underscoring pressure on foreign exchange earnings.

Debt servicing obligations are also projected to worsen. The IMF said public external debt service would rise from 8.1 per cent of exports in 2025 to 8.8 per cent in 2027, despite a temporary improvement in 2026.

Interest payments alone are expected to increase from about $2 billion in 2025 to $3 billion by 2027, further tightening fiscal space.

At the federal level, the report warned that debt servicing will continue to consume more than half of government revenue. It estimated that interest payments accounted for 53.2 per cent of federal revenue in 2025 and would remain above 50 per cent through 2027, signalling persistent revenue constraints.

The IMF also highlighted growing reliance on external borrowing to finance budget deficits. It noted that Nigeria’s 2026 financing plan is expected to lean more heavily on external sources, including potential Eurobond issuance and a proposed $5 billion Total Return Swap arrangement reportedly linked to First Abu Dhabi Bank.

However, the Fund raised concerns about the structure of such transactions, describing them as complex and less transparent than traditional borrowing instruments.

According to the IMF, such arrangements could expose the government to financial risks, including margin calls if the value of underlying assets declines due to exchange rate or market movements.

An IMF official, Christian Ebeke, said the Fund believes Nigeria still has access to simpler and more transparent financing options, including international bond markets and concessional borrowing.

He cautioned that: “These types of structures carry risks… the terms are not always very transparent when we review these instruments across countries.”

Despite these concerns, the IMF maintained that Nigeria’s overall debt position remains manageable. It assessed the country’s risk of sovereign stress as “moderate,” citing improvements in macroeconomic stability, stronger growth performance, and a reduction in debt-to-GDP ratios to about 36.1 per cent in 2025.

The report also acknowledged that recent economic reforms have improved resilience, particularly in the face of global shocks. However, it warned that weak revenue mobilisation, fiscal slippages, and election-related spending pressures could reverse some of these gains if not carefully managed.

IMF officials urged the Nigerian authorities to maintain fiscal discipline, strengthen revenue generation, improve budget transparency, and ensure that borrowing remains within sustainable limits.

On growth prospects, the Fund projected that Nigeria’s economy would expand by 4.1 per cent in 2026 and 4.3 per cent in 2027, though it noted that global uncertainties, including geopolitical tensions, could weigh on earlier projections.

It also recommended that monetary policy remain tight to contain inflation, while encouraging the expansion of targeted social intervention programmes to cushion vulnerable households from economic shocks.

The IMF further advised Nigeria to improve tax administration and broaden its revenue base over time, arguing that stronger domestic revenue mobilisation remains critical to reducing dependence on borrowing and creating fiscal space for development spending.